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Wealth function
What is wealth? For any individual,
business firm, or government, wealth is
the sum of the values of all assets we
hold at any point in time. Thus, our
wealth at the moment equals the
combined value of the automobiles,
homes, clothing, and hundreds or
thousands of other assets we hold up to
the present day.
Credit Function
Credit consists of a loan of funds in
return for a promise of future
payment. Consumers need credit to
purchase a home, buy groceries,
repair the family automobile, and
retire outstanding debts. Businesses
need credit to buy inventory,
Payments Function
The global financial system also provides
a mechanism for making payment for
purchases of goods and services. Certain
finanicla asset including currency,
noninterest bearing checking accounts
and interest bearing checking accounts
(refered to as negotiable order of
withdrawal or NOW accounts) still serve
as a popular medium of exchange in
making payments all over the globe.
Policy function
Finally, in recent decades, the
financial markets have been the
principal channel through which
government has carried out its policy
of attempting to stabilize the
economy and avoid inflation.